Some Advice for Those Interested in Investing in
Real Estate
I offer this not as a comprehensive course, but as a general
set of guidelines to help direct your thinking as you consider investing
in real estate.
Abundant Opportunities
There are plenty of ways
to invest in real estate - commercial, industrial, single-family residential,
apartments, raw land, etc. There challenges are finding the properties,
knowing which ones constitute a good risk, being in a position to
take advantage of an opportunity when it comes along, and making your
investment pay off. Many people find their way into investing almost
by accident - a friend or acquaintance needs to "get out from under"
a mortgage and would rather give the house to a friend rather than
someone they don't know; a family member passes on, leaving you with
a property that needs to be disposed of - or a similar circumstance.
Others decide that it would be a great way to get out of their boring,
dead-end career.
Not "Easy Money"
More fortunes are made in real
estate than any other field, but lots of money is lost as well. There
are literally hundreds of real estate gurus willing to show you how
to make millions in real estate investment - for a price, or course.
If you are serious about investing in real estate, invest some time
and read up on the subject. You may wish to take one of the many courses
available as well. I will not try to give you a short course in real
estate investment, but if you think you would like to take a shot
at it, here's a little advice based on my experience:
- Decide
what you want to accomplish. Do you want to "flip" (buy and immediately
resell) the property for a quick profit, or rent it out for an income
stream. Most fledgling investors start by flipping, and then become
landlords.
- Find an advisor - someone with experience who is willing
to give you the benefit of their experience. Family, church, and professional
networking will help you find this person.
- Start lining up your money.
Save up money for down payments, earnest money deposits, closing costs,
and the carrying costs (mortgage, tax and insurance, etc.) Find a
loan officer who has creative programs geared toward investors (some
loan officers will actually be able to connect you with investors
if you want to flip the property). Know in advance how much debt you
are going to be able to take on and for how long.
- Find competitive
vendors. The best investment properties are ones which have solid
foundations, decent cabinets, no major mold or termite problems, but
look like hell otherwise. Paint and carpet are cheap, and if you are
handy you can add lots of value with your own work.
- Start looking
close to home. Talk to a Realtor you trust to get accurate sales information
and get you set up to receive automated MLS updates via email to help
find potential investment properties. Some Realtors specialize in
investment properties and provide foreclosure lists for those who
are interested in buying bank-owned properties facing foreclosure.
Although the MLS and other Realtor-provided services are good sources
for properties, the best way to find
investment properties at bargain-basement
prices is by getting out in the neighborhood you are interested in
and talking to people. Ask friends, neighbors, professional contacts,
and acquaintances if they have any leads for you, and keep your eyes
and ears open. Don't be afraid to engage a stranger in a conversation
if you think they might be a potential seller, or know of one.
- Resist
the temptation to jump on the first thing you find. Run your numbers
carefully and conservatively, and consult your advisor. Hang back
until you are 100% certain there is no way you can loose money on
the deal, and pad your estimates to the hilt.
- Once you find a deal
you feel really good about and can't see a way to loose money on,
jump on it quickly, or you can bet someone else will. If you want
to "lock in" the property before committing fully, you can offer the
seller a non-refundable payment to hold the property for a few days
or a few weeks. Be optimistic, but also think in terms of the worst-case
scenario. And finally, as much as it pains me to say it, don't take
ANYBODY at their word. As with all transactions of this magnitude,
your agreement should be in writing on contract forms prepared by
a lawyer specifically tailored for the laws in your state, and signed
by both parties. This serves two important purposes - one, to make
clear in writing exactly what the agreement is, and two, to legally
bind both parties to perform as promised.
Do Your Homework
Preparation
will be the key to your success. Just as failing to plan for a cross-country
trip can lead to disaster, jumping into a real estate investment without
having the necessary skills, tools, and backup can turn a potential
money-maker into a money pit. These preparations and tools will vary
depending on the type of investment property you are looking for.
Learning
How
Following is a very short list of investment courses and books.
A simple keyword search for "real estate investing" will yield thousands
of results. I present these only as a sample of what's available,
and do not endorse any particular method or text:
On the Internet:
At
Amazon.com:
Someone Else's
Opinion
A sizable appraisal of various real estate investing gurus
can be found here:
Parting
Comments
As with many products, many of those selling investment programs
will make some pretty outrageous statements, and most of them will
claim to be unique, more powerful, easier, faster, etc. Use your common
sense, look at several different programs, and choose from the ones
that make sense to you given your situation. Ultimately, it is your
own hard work and creativity that will determine your success in real
estate investment. Don't take any one person's word on any given question.
Ask around, read, think, and pray, and don't expect to get rich overnight.
